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Static efficiency in Dutch supermarket chain

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Author Info
Harold Creusen ()
Arno Meijer
Gijsbert Zwart ()
Henry van der Wiel ()
Abstract

In this study, we analyse changes in market power in the Dutch supermarket chain and discuss the effects on welfare. The supermarket chain includes consumers, supermarkets, buyer groups and food manufactures. We look at the theoretical background of market power. Special attention has been paid to recent theories of buyer power of retailers in the vertical chain. Theory suggests that supermarkets can enhance their buyer power by, for instance, using own private brands as an outside option in bargaining with manufacturers. Using firm-level data, indicators reveal that profit margins of both supermarkets and of manufacturers have declined between 1993 and 2005. Hence, competition on these markets seems to have become tougher and mark-ups lower over time. Furthermore, we find no significant empirical indications that supermarkets were able to use their buyer power to shift profits from manufacturers to supermarkets after 1993. Finally, all else equal, in terms of welfare consumers have benefited from fiercer competition in terms of lower prices.

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Paper provided by CPB Netherlands Bureau for Economic Policy Analysis in its series CPB Documents with number 163.

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Date of creation: Apr 2008
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Handle: RePEc:cpb:docmnt:163

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Keywords: Supermarket price cost margins buyer power seller power welfare

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Find related papers by JEL classification:
D40 - Microeconomics - - Market Structure and Pricing - - - General
D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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